Having a co-borrower is a huge deal. And just like any other investment, you’ll want to be absolutely clear about what it entails before committing. Bookmark this blog post for referencing the basics of co-borrowing and contact us for an obligation-free mortgage consultation.
Let’s start by describing what it means to be a co-borrower. Sometimes called a “co-signer” or “co-applicant,” a co-borrower is anyone who is on the mortgage. This means that the co-borrower provided their income, assets, and credit history to help you qualify for the loan.
Both you and your co-borrower are equally responsible for the monthly mortgage payments.
Who Can Be Your Co-Borrow?
Typically, co-borrowers are spouses or partners, but anyone can be a co-borrower. Parents, children, a close friend, or a business partner are examples of co-borrowers. Although not legally required, both borrowers are usually on the title as well. It’s also not necessary that both borrowers live in the home. In this case, the co-applicant who does not live in the house is referred to as a “non-occupant co-borrower.”
The process of applying for the loan together is essentially the same in all of these situations. A mortgage application and credit check will be completed, as well as a review of bank statements, income, work history, and debt --just like applying for a loan as an individual.
The Benefits of Having a Co-Borrower
The main reason that people decide to co-borrower is that it often makes it easier to qualify for a mortgage, qualify for a lower rate, or to qualify for a larger amount. Considering this, it only makes sense to add a co-borrower if they are bringing additional assets or income.
If the co-borrower is a spouse and their financials don’t help the situation, it probably best not to add them as a co-borrower. You can, however, add your spouse or partner to the property title. Rules regarding the non-borrowing spouse vary by state so, please contact us for guidelines that pertain to you.
The most common reason that people have trouble qualifying for a mortgage is that their debt-to-income (DTI) ratio is too high. In other words, the amount you own is too high,, considering how much money you have coming in. When you add a co-borrower, you also add their income. That means that your DTI is now lowered, making it possible for you to qualify.
Co-borrowers, Credit, and Mortgage Rate
When considering the credit scores of co-borrowers, the lowest of the two will be used to determine the mortgage rate. Also, if the lowest score is below the minimum credit score required, you won't be able to qualify for that particular loan.
Beyond the credit score, credit history is also taken into consideration and can very helpful for first-time homebuyers with little credit history.
Should You Have a Co-Borrower?
If your co-borrower does not make it easier to qualify for a loan or help you to qualify for a lower rate, it’s probably best not include them in your loan. Remember, you can always add someone to the property title without adding them to the mortgage.
Doing so allows them to have ownership of the property without being liable financially for the debt.
Need help determining whether adding a co-borrower would benefit you? We can help! Start the pre-qualifying application today and we’ll talk you through your option in buying a home with a co-applicant.